Slow growth in jobs underscores challenge ahead

Federal Reserve Board Chairman Ben Bernanke testifies on Capitol Hill in Washington Friday, Jan. 7, 2011, before the Senate Budget Committee. The nation's economy added 103,000 jobs in December and the unemployment rate dropped to 9.4 percent last month, its lowest level in 19 months. Federal Reserve Board Chairman Ben Bernanke testifies on Capitol Hill in Washington Friday, Jan. 7, 2011, before the Senate Budget Committee. The nation's economy added 103,000 jobs in December and the unemployment rate dropped to 9.4 percent last month, its lowest level in 19 months. (AP Photo/Alex Brandon)
By Christopher S. Rugaber
AP Economics Writer / January 7, 2011

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WASHINGTON—The U.S. economy is steadily adding jobs, but still just barely enough to keep up with the growth of the work force. The weakness underscores the nation's struggle to get back to something resembling normal employment.

The economy added 103,000 jobs in December, a figure that fell short of what most economists were hoping for. The unemployment rate did come down, to 9.4 percent from 9.8, but that was partly because people gave up looking for work.

"The labor market ended last year with a bit of a thud," Ryan Sweet, an economist at Moody's Analytics, said after the Labor Department released its monthly jobs report Friday. He said the drop in unemployment wasn't likely to be sustained.

Over the past three months, the economy has added an average of 128,000 jobs a month. That's just enough to keep up with population growth. Nearly twice as many are generally needed to significantly reduce the unemployment rate.

All told, employers added 1.1 million jobs in 2010, or about 94,000 a month. The nation still has 7.2 million fewer jobs today than it did in December 2007, when the recession began.

Some economists predict that the nation will create twice as many jobs this year as it did last year. They note that people who still have jobs are not as worried about losing them as they might have been a year ago, and that people are spending more. A rebound in retail sales probably means businesses will hire more people.

Economists also expect that a tax cut that takes effect this month -- a reduction in the amount taken out of workers' paychecks to pay for Social Security -- will also lead Americans to spend more this year.

"The conditions are in place to get pretty good job growth this year," said John Canally, an economist at LPL Financial. "The payroll tax cut is in place, exports are booming, and banks are lending again."

But even if hiring picks up, the damage from the recession, which has been over for a year and a half, will take years to undo.

Federal Reserve Chairman Ben Bernanke told a Senate panel Friday it could take five more years for the unemployment rate to return to a more normal level of 6 percent. Most economists think unemployment will still be near 9 percent at the end of 2011.

"This was a brutal recession we went through," said President Barack Obama, who introduced Washington insider and veteran adviser Gene Sperling as director of the National Economic Council.

The president said the jobs report showed that the economy is trending in the right direction, but acknowledged that hiring must accelerate.

"We've got a big hole that we're digging ourselves out of," he said.

That's why the economy needs stronger job growth than after milder recessions.

Hiring has picked up faster this time than after the 2001 recession. In the year and a half since this recession ended, the economy has added a total of 72,000 jobs. In the same period after the 2001 recession, the nation lost jobs -- more than a million.

And job growth would be even stronger if not for the depressed housing industry and financially ailing state and local governments. Construction firms and local governments shed a total of 36,000 jobs in December.

Those two segments of the economy are "going through a long-term restructuring," said John Silvia, chief economist at Wells Fargo Securities. "That's limiting the overall job gains that you're seeing."

Julia Coronado, an economist at BNP Paribas, said the weakness in construction and state and local government is probably costing the economy 75,000 to 80,000 jobs a month. If those sectors were hiring as much this time, the economy would have added nearly 200,000 jobs last month, instead of just 103,000.

The report provided scant encouragement for the long-term unemployed. The number of people without jobs for six months or more rose for the third straight month, to 6.4 million. The postwar record is 6.7 million, set in May.

Nearly half of the unemployed -- 44 percent -- have been that way for at least half a year. Many are becoming discouraged and giving up on their job searches. That was a key reason the unemployment rate fell so far in December.

People out of work are not counted as unemployed unless they're looking for a job. More than a quarter-million people dropped out of the work force in December, accounting for about half the decline in the unemployment rate.

And more people are settling for less work. Nearly 9 million are working part time when they would prefer full-time jobs. The so-called underemployment rate, which counts those workers and people who have recently given up looking, was 16.7 percent in December, down from 17 percent the month before.

Some positive signs emerged from the December jobs report. The economy created more jobs in previous months than the government first estimated. Employers added 210,000 jobs in October, above the previous figure of 172,000. November's total was revised to 71,000, up from 39,000.

Still, the unemployment rate has now topped 9 percent for 20 months in a row, the longest such streak on record. And even with last year's job gains, the unemployment rate fell only from 9.7 percent to 9.4 percent.

The disappointing figure for new jobs helped weigh down the stock market. The Dow Jones industrial average closed down 22 points, or 0.2 percent.

The strongest job gains last month came in health care and in leisure and hospitality. Health care added about 36,000 jobs, while restaurants and hotels hired more than 29,000 new workers.

Retailers added 12,000 new jobs after losing jobs the previous month. Manufacturers hired 10,000 new workers after losing jobs for four straight months. The bleeding continued in construction, which lost 16,000 jobs.

Companies hired nearly 16,000 temporary workers, the fewest since July.

The average work week remained at 34.3 hours for the third straight month. But average weekly earnings rose by just over a dollar, to $781.35. The additional jobs and slightly higher pay translate into a modest gain in incomes, economists say, which could lead to more spending.